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Summary
Amidst the inauguration of the new Federal Reserve Chair and the subsequent monetary policy reset, the market's attention is heavily focused on the Personal Consumption Expenditures (PCE) deflator inflation indicator.
As Chair Kevin Warsh abolished forward guidance in his first meeting since taking office, scenarios of increased market volatility based on economic data are being raised.
If the upcoming May PCE inflation data registers a higher-than-expected Core PCE of 3.4%, expectations for a rate cut by the end of the year could be further constrained.
Consequently, observations suggest that a mega-rotation toward high-quality value stocks—which offer downside stability and stable cash flows—will gain traction over fast-rising growth stocks.
Market Overview
The Federal Reserve froze the benchmark interest rate at 3.50% to 3.75% per annum at the regular FOMC meeting held on June 16-17.
However, it drastically reduced the length of the policy statement to 114 words—about one-third of its previous size—and deleted future guidelines, signaling a powerful rules-based policy reset.
Furthermore, the dot plot, which contains Fed officials' interest rate projections, raised the median year-end benchmark rate to 3.8%, leaving the door open for one additional rate hike within the year.
Global financial markets are closely watching whether the May PCE deflator results (consensus headline 4.0%, core 3.4%), to be released on the 26th, will further reinforce the Fed's hawkish stance.
As of intraday on June 23, 2026 (tentative), the Nasdaq composite stands at 26,166.60 points, and the USD/KRW exchange rate maintains a somewhat unstable flow at 1,537.70 won.
In the domestic stock market, the KOSPI is at 8,859.21 points and the KOSDAQ is at 934.89 points (tentative), as they remain sensitive to changes in the stance of US monetary policy.
Financial Analysis
As Fed officials began applying stricter standards to inflation indicators, economic growth and inflation forecasts were also significantly revised.
The table below summarizes the changes in the median values of key economic indicators adjusted at the June FOMC compared to the March forecasts.
| Indicator | June 2026 Forecast (Median) | March 2026 Forecast (Median) | Change |
|---|---|---|---|
| Real GDP Growth Rate | 2.2% | 2.4% | -0.2%p |
| Unemployment Rate | 4.3% | 4.3% | Unchanged |
| Headline PCE Inflation Rate | 3.6% | 2.7% | +0.9%p |
| Core PCE Inflation Rate | 3.3% | 2.7% | +0.6%p |
| Benchmark Interest Rate Forecast (Year-End) | 3.8% | 3.4% | +0.4%p |
As inflation forecasts were revised upward across the board, concerns are rising that the input cost burden on companies may persist.
However, thanks to the continuation of AI-related infrastructure investment and robust performance in the financial sector, the overall earnings (EPS) estimates of S&P 500 companies are being defended without significant damage.
Valuation
Currently, the forward price-to-earnings (Forward P/E) ratio of the S&P 500 index stands at 22.59 times, exceeding the long-term average, which keeps multiple expansion pressure alive.
According to Daily Stock's proprietary Fear & Greed Index, the Nasdaq market is currently in the "Fear" (34.7) stage, indicating that short-term technical fatigue has increased compared to "Neutral" (41.6) one week ago and "Neutral" (59.0) one month ago.
On the other hand, the KOSPI market's Fear & Greed Index is currently at "Neutral" (51.4), detecting a cautious atmosphere observing macro variables.
From a valuation perspective, high-quality value stocks (PER level of 15 to 17 times), which are relatively undervalued compared to the high multiples of mega-cap tech stocks, are highly likely to attract attention.
Particularly in a prolonged high-interest-rate environment, the attractiveness of value stocks with lower borrowing costs and stable free cash flow (FCF) could be highlighted.
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Expert & Institutional Analysis
A portfolio strategist at BlackRock interpreted the removal of previous dovish bias language from the Fed statement as a strong warning sign that the market should no longer expect easy rate cuts.
Goldman Sachs, while viewing earnings prospects positively, also analyzed that in a "higher for longer" interest rate environment, internal structural adjustments in the stock market—where concentration is resolved—could occur.
An analysis team at Apollo Global Management emphasized that a significant portion of the gains since the beginning of the year had been concentrated in a very small number of AI infrastructure beneficiaries.
Accordingly, they evaluated that as high inflation and high interest rates are extended, a "Reflation Trade" scenario, where buying pressure spreads to the equal-weight index or small-cap value stocks (such as the Russell 2000), is dominant.
Risk Factors
The most immediate risk is if the May PCE deflator, to be released on the 26th, exceeds market expectations and confirms sticky inflation even in areas excluding energy.
In addition, the "official abolition of forward guidance" announced by Chair Kevin Warsh could obscure interpretations of the Fed's monetary policy path with every economic indicator released, adding to market uncertainty.
Lastly, if earnings estimates for mega-cap growth stocks decline even slightly during the process of funds dispersing into value stocks, the risk of leading to multiple contraction across the entire index cannot be ruled out.
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Investment Perspective
At this point, rather than reacting excessively to short-term fluctuations in inflation indicators, we must take the monetary policy paradigm shift, summarized by the abolition of forward guidance, seriously.
For investors who have previously been heavily skewed toward mega-cap growth stocks, diversifying assets into high-quality value stocks or traditional blue chips to secure portfolio stability could be a reasonable option.
Rather than focusing on the upward momentum of the index itself, a conservative approach of picking winners among companies that prove solid earnings stamina and cash generation capability while controlling downside risk may be effective.
Investor Checklist Q&A
Q1. What kind of pressure does new Fed Chair Kevin Warsh's monetary policy stance exert on the market?
A1. Chair Warsh believes in rules-based monetary policy and has officially abolished forward guidance, viewing it as an unnecessary fine-tuning tool. This is interpreted as a silent signal to the market not to harbor vague expectations of interest rate cuts, and a manifestation of a strong hawkish determination to thoroughly pursue principles and price stability.
Q2. If the May PCE deflator announced on the 26th shows a 4.0% YoY increase and Core PCE shows a 3.4% increase, how will the market react?
A2. Although these numbers are largely in line with market expectations, they continuously and significantly exceed the Fed's official inflation target (2%). If this scenario becomes reality, the possibility of a rate cut within the year will virtually disappear, and instead, the prospect of one additional rate hike within the year will establish itself as consensus, leaving room for multiple adjustments in growth stocks.
Q3. If the Fed abolishes forward guidance, how should retail investors change their trading perspective?
A3. Without forward guidance, the market must adjust buying and selling by relying entirely on monthly economic data (CPI, PCE, employment) without policy hints. As a result, intraday stock price volatility right after indicator announcements may increase more than usual, so it is advisable to avoid excessive leverage trading and respond with split purchases.
Q4. Is there any possibility that the rotation from mega-cap growth stocks to value and small-cap stocks will be a temporary phenomenon?
A4. As the inflation and high-interest-rate environment prolongs, earnings pressure on growth stocks to justify high valuations becomes stronger. On the other hand, low-PER value stocks or economically sensitive sectors with relatively low stock prices stand out for their valuation attractiveness, continuing to attract fund dispersion. Therefore, the rotation trend is likely to continue until macro indicators stabilize.
Q5. In an unstable high-interest-rate period, what types of stocks should be avoided and what types should be preferred?
A5. It may be advantageous to avoid high-growth venture companies or small-cap growth stocks that rely solely on future long-term growth value while having high debt-to-equity ratios and failing to show visible cash flows immediately. Conversely, a strategy of preferring traditional high-quality companies with forward P/E ratios below 30 times and abundant free cash flow (FCF), capable of share buybacks or solid dividends, is positive for risk management.